Population and Social Security:
Background
Overview. Social Security most commonly refers to four programs financed through Social Security (FICA) payroll taxes: retirement pensions (frequently called old-age insurance), survivors insurance, disability insurance, and Medicare for the aged and disabled. First established by Congress in 1935 as a basic safety net for retired and disabled workers and their dependents, the Old Age and Survivor's Insurance (OASI) program has become the economic mainstay for most elderly Americans
Importance. As the single largest source of income for the elderly, accounting for two of every five dollars older Americans receive, Social Security has been extraordinarily successful in reducing poverty among America's 65 plus population. Likewise, Medicare, added in 1965, has been instrumental in making health care available to all elderly Americans, as well as preventing high medical bills from depleting their lifetime savings.
The Population Connection
Ratio of active to retired workers crucial. Social Security was set up so that taxes from active workers pay the benefits of retired and disabled workers, as well as their survivors and eligible dependents. Thus, being a pay-as-you-go system, the solvency of Social Security is directly tied to the ratio of workers to those receiving benefits. The rapid population growth of the "baby boom" created a huge generation ö some 77 million strong ö which now, as active workers, contributes far more in taxes than the benefits paid out to retirees from previous generations. However, after 2010 this huge population bulge of boomers will begin to retire. Increasingly, taxes from the active workers will be unable to fully pay their Social Security benefits.
The growth connection to insolvency. Although U.S. population growth has continued to supply new workers, three factors have combined to undermine the future solvency of Social Security. First, the per recipient cost of Social Security benefits has grown due to generous cost-of-living adjustments, the skyrocketing costs of medical care, and increases in life expectancy. Second, as the baby boomers entered the work force in the 1970s, they had fewer babies ö future workers. This population boom and bust cycle has significantly contributed to the declining ratio of workers to retirees (an unbalanced age structure) after 2010. The third factor is high immigration which replaced native-born births as the main source of U.S. population growth. In general, these immigrant workers have less education, lower skills, a higher tendency to avoid taxes, and overall lower earnings with consequently lower Social Security tax contributions.
The Coming Dilemma
The balance shifts. Since its inception, taxes from current workers have exceeded the benefits paid out. However, in 2013, benefits paid out are projected to begin exceeding current Social Security tax income, with the balance made up from the federal government's general budget (as it begins paying back money borrowed from the Social Security trust funds during the many years that it ran a surplus). By 2032, the trust fund surplus is expected to be exhausted as the deficit between taxes paid and benefit costs reaches its peak.
Projected deficits to be enormous. By 2030, the Social Security entitlement shortfall is projected to reach massive proportions as retirement benefits increase from 4 to a whopping 6 percent of the gross domestic product (GDP) and Medicare costs increase from less than 3 to 6 percent of the GDP. As the benefit shortfall increases after 2013, politicians will be faced with a no-win situation of raising taxes, increasing deficit spending, cutting non-Social Security expenses and programs, and/or curtailing Social Security benefits.
Quick Fixes
Avoiding the trap of an unending Ponzi scheme. More population growth, especially through high immigration, would only worsen the problem and pass it on to our posterity. In order to achieve a barely favorable actuarial balance of workers to retirees, the U.S. population would need to add 200 million more workers ö with the requisite earning capability ö on top of the additional 130 million already projected for 2050. More workers today means more retirees tomorrow, and the addition of even more new workers to support them.
An immigration growth treadmill? Realistically, increasing the ratio of workers to retirees could only be done through massive increases in our already historically-high immigration levels. This perpetual growth treadmill would create many more additional costs that would far out weigh any benefits to Social Security, especially since immigrants use far more in public services than they contribute in taxes. The additional burdens ö on our environment and quality of life ö necessary to accommodate a U.S. population of 600 million would make the problem of funding Social Security pale by comparison.
Population Policy Solutions
A sound foundation for long-term sustainability. Insuring the long-term solvency of Social Security, as well as our quality of life, requires the kind of solid foundation provided by a stable population with an evenly balanced age-structure. Getting off the population growth treadmill and beginning the necessary and gradual transition to a smaller, optimal population is essential to this long-term sustainability. Such an optimum population would feature an even distribution among all age groups with a solid ratio of working Americans (aged 18-64) to both the young and old. Our rapid population growth has played a major part in creating the Social Security dilemma, it is now time to recognize that continued growth is part of the problem, not the solution.
Summary:
- Take advantage of an aging America in the 21st century to begin a transition to a smaller and more sustainable population of about 150 million people.
- We must resist the temptation to accept simplistic, but false, solutions for the future structural challenges to Social Security.
- The long-term viability of our society must rest on the assumption that population growth cannot continue indefinitely.
- We must adopt realistic and responsible solutions that balance the interests of both current and future generations of Americans.
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